First Quarter After Acquisition of 012 Golden Lines Yields Good
Synergy Which is Expected to Grow and Reach Full Effect by End of
2007 PETACH TIKVA, Israel, May 15 /PRNewswire-FirstCall/ --
Internet Gold, (NASDAQ NMS and TASE: IGLD) today reported its
financial results for the quarter ended March 31, 2007. On December
31, 2006, Internet Gold's 012 Smile.Communications Ltd. completed
the acquisition of 012 Golden Lines. As such, Internet Gold's
results for the first quarter of 2007 include the contribution of
012 Golden Lines for the first time. To assist investors in making
relevant comparisons the Company has made reference to non-GAAP
pro-forma Q1 2006 results, which consist of the sum of Internet
Gold's results and 012 Golden Lines' results for the period. To
supplement the consolidated financial statements presented in
accordance with generally accepted accounting principles ("GAAP")
and the pro forma information, the Company also uses certain other
non-GAAP measures to enhance overall understanding of its current
financial performance and prospects for the future. These non-GAAP
measures and pro-forma results are provided for information
purposes only and are not presented in accordance with generally
accepted accounting principles. Highlights for the quarter (year
over year): - 224% increase in revenue to NIS 300.7 million (US$
72.4 million) - 292% increase in non-GAAP EBITDA to NIS 63.1
million (US$ 15.2 million) - 305% increase in non-GAAP operating
income to NIS 39.3 million (US$ 9.5 million) - 162% increase in
earnings per share to NIS 0.94 (US$ 0.23) Financial Results for the
First Quarter Revenues for the first quarter of 2007 reached NIS
300.7 million (US$ 72.4 million), an increase of 224% compared with
NIS 92.9 million recorded in the first quarter of 2006 and a 157%
increase compared with the fourth quarter of 2006. The first
quarter revenues were 19% higher than the combined revenues of
Internet Gold and 012 Golden Lines on a pro forma basis in the
first quarter of 2006. Non-GAAP operating income for the quarter
reached NIS 39.3 million (US$ 9.5 million), a nearly four-fold
increase compared with NIS 9.7 million recorded in the first
quarter of 2006, and a 193% increase compared with the fourth
quarter of 2006. Non-GAAP operating income increased by 48% in the
first quarter of 2007 compared to the combined non-GAAP operating
income of Internet Gold and 012 Golden Lines on a pro forma basis
in the first quarter of 2006. Non-GAAP operating margin for the
first quarter of 2007 rose to13% compared to 10% recorded in the
first quarter of 2006 and 11% in the fourth quarter of 2006. If the
operating income of Internet Gold and 012 Golden Lines had been
combined for the first quarter of 2006, its operating margin on a
non-GAAP pro forma basis would have been11%. GAAP operating income
for the first quarter reached NIS 33.6 million (US$ 8.1 million).
GAAP operating margin for the first quarter of 2007 was 11%.GAAP
operating income for the first quarter of 2006 reached NIS 9.7
million and its GAAP operating margin was 10%. GAAP operating
income for the forth quarter of 2006 reached NIS 13.4 million and
its GAAP operating margin was 11%. The difference between GAAP and
non-GAAP operating income is a result of the exclusion of
amortization expenses related to the acquired intangible assets
from 012 in the first quarter of 2007. Non-GAAP results exclude the
amortization of acquired intangible assets from 012 of NIS 5.7
million net of taxes of NIS 4.1 million, in the first quarter of
2007. Out of the total purchase price paid for the acquisition of
012 Golden Lines, a total of approximately NIS 200 million was
assigned to certain intangible assets which are generally amortized
on a straight-line basis over their useful lives, generally 5 to 10
years. The purchase price allocation for the acquisition of 012 is
preliminary and is subject to revision as more detailed analyses
are completed and additional information on the fair value of
assets and liabilities becomes available. Any change in the fair
value of the net assets of the acquired company will change the
amount of the purchase price allocable to goodwill. Net income for
the first quarter of 2007 was NIS 18.5 million (US$4.5 million), or
NIS 0.94 (US$ 0.23) per share, an increase of 162% compared with
NIS 6.6 million, or NIS 0.36 per share, for the first quarter of
2006, and an increase of 207% compared with the fourth quarter of
2006. Net income increased by 24% compared to the non-GAAP pro
forma net income of Internet Gold and 012 Golden Lines for the
first quarter of 2006. Non-GAAP EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) for the quarter reached NIS
63.1 million (US$ 15.2 million), an increase of 292% compared with
the first quarter of 2006 and 212% compared with the fourth quarter
of 2006. Comments of Management Commenting on the results, Eli
Holtzman, Internet Gold's CEO, said, "The first quarter was an
excellent period for Internet Gold from every perspective. The
successful merger has tripled our revenues as compared with the
first quarter of 2006 and quadrupled our operating income. The
Internet Gold Group was successful in exhibiting high growth
performance and we plan to continue focusing our efforts on
generating growth into the future." Overview of the Company's
Principal Subsidiaries: 012 Smile.Communications Ltd.: Revenues for
Q1 2007 increased by 258% compared with Q1 2006, reaching NIS 280.6
million (US $67.5 million). Non-GAAP operating income for Q1 2007
increased by 549% compared with Q1 2006, reaching NIS 37 million
(US $8.9 million), representing a non-GAAP operating margin of 13%.
Non-GAAP EBITDA for the period was 21%. Operating income for Q1
2007 was NIS 31.3 million (US $7.5 million), representing an
operating margin of 11%. This compared to operating income of NIS
5.7 million and an operating margin of 7% in the first quarter of
2006. - Broadband data: As of the end of the first quarter, the
Company's broadband customer base had reached nearly 500,000
subscribers. - Traditional voice services: For the first quarter of
2007, revenues from the Company's international telephony business
grew by 413% compared with the first quarter of 2006 and 14%
compared with the revenues of Internet Gold and 012 Golden Lines on
a pro forma basis in Q1 2006. - Good progress with merger: During
Q1, 012 Smile.Communications began executing its merger plan, and
has begun realizing synergies as projected. The effect of the
merger's synergies is projected to increase in the coming quarters
and to reach its full effect by the end of 2007. - Successful bond
offering: Recently, 012 Smile.Communications Ltd. completed a
private placement of NIS 425 million of debt to institutional
investors in Israel. Commenting on the results, Ms. Stella Handler,
CEO of Internet Gold's 100% owned subsidiary 012
Smile.Communications, said, "I am extremely pleased with our
results this first quarter. While we are investing extra resources
in driving forward an efficient and smooth merger process, we have
continued our focus on the successful operation of all our business
lines and were able to perform extremely well. "During the first
quarter, we received a full operating license and have finalized
our marketing plans for launching our new Voice over Broadband
(VOB) domestic telephony services. We believe that our strong
positioning across Israel's ISP and international long distance
('ILD') markets, which connects us directly to more than 700,000
customers, will enable us to establish a strong market share
quickly and to benefit over the long term from the expansion and
deregulation of the domestic market. We trust that this new market
for us, which is currently worth over one billion dollars in
Israel, will indeed present our next significant growth driver."
Smile.Media Ltd.: Revenues for the first quarter of 2007 increased
by 39% compared with the corresponding period of 2006, reaching NIS
20.1 million (US $4.8 million). Operating income for Q1 2007
reached NIS 3.5 million (US $0.8 million). Non GAAP EBITDA margin
for the period was 23%. - e-Advertising: On a year-over-year basis,
the Group's e-Advertising revenues for the quarter rose by 30%. -
e-Commerce: On a year-over-year basis, the Group's e-Commerce
revenues were up by 80% compared to the first quarter of 2006.
Commenting on the results of the Smile.Media subsidiary, Mr.
Holtzman concluded, "We continue to believe strongly in the
long-term potential of the interactive advertising and e-Commerce
markets, and have begun executing an aggressive strategy designed
to assure that we retain the leadership position we have built over
the past several years. To this end, we are expanding Smile.Media's
management team and investigating interesting opportunities in
Israel as well as in several emerging countries in order to
solidify our leadership position in these markets. Increase in
Number of IGLD Shares:Outstanding: In April 2005, Internet Gold
completed an offering in Israel of NIS 220 million of convertible
bonds that was scheduled to repaid during the period April 2008
through April 2015 and warrants to purchase 2.5 million ordinary
shares that are exercisable until October 15, 2007. The bonds are
convertible into ordinary shares at a conversion price of NIS 40
($9.60) per share until March 2008, at which time the conversion
price will increase to NIS 50 ($12.0). The exercise price of the
warrants is currently NIS 41 ($10), which price is linked to
Israeli Consumer Price Index. Beginning in the fourth quarter of
2006 holders of the bonds and warrants began to convert their bonds
and exercise the warrants. As at March 31, 2007, bond and warrant
holders had converted NIS 40.9 million ($9.8 million) of the bonds
into 1,023,525 ordinary shares and exercised 835,487 warrants.
Subsequent to March 31, 2007 and through May 9, 2007, bond holders
had converted an additional NIS 48.2 million ($11.6 million) of the
bonds into 1,205,011 ordinary shares and warrants to purchase an
additional 198,089 ordinary shares had been exercised, with the
Company receiving NIS 8.1 million ($2.0 million) in proceeds from
the exercise of the warrants. Reconciliation Between the Results on
a GAAP and Non-GAAP Basis Reconciliation between the Company's
results on a GAAP and non-GAAP basis is provided in a table
immediately following the Consolidated Statement of Operations
(Non-GAAP Basis). Non-GAAP financial measures consist of GAAP
financial measures adjusted to exclude amortization of acquired
intangible assets, as well as certain business combination
accounting entries. The purpose of such adjustments is to give an
indication of our performance exclusive of non-cash charges and
other items that are considered by management to be outside of our
core operating results. Our non-GAAP financial measures are not
meant to be considered in isolation or as a substitute for
comparable GAAP measures, and should be read only in conjunction
with our consolidated financial statements prepared in accordance
with GAAP. Our management regularly uses our supplemental non-GAAP
financial measures internally to understand, manage and evaluate
our business and make operating decisions. These non-GAAP measures
are among the primary factors management uses in planning for and
forecasting future periods. We believe these non-GAAP financial
measures provide consistent and comparable measures to help
investors understand our current and future operating cash flow
performance. These non-GAAP financial measures may differ
materially from the non-GAAP financial measures used by other
companies. Reconciliation between results on a GAAP and non-GAAP
basis is provided in a table immediately following the Consolidated
Statement of Operations. About Internet Gold Internet Gold is one
of Israel's leading communications groups with a major presence
across all Internet-related sectors. Its 012 Smile.Communications
100% owned subsidiary is one of Israel's major Internet and
International Telephony service providers, and one of its largest
providers of enterprise/IT integration services. Its 100% owned
Smile.Media subsidiary manages a growing portfolio of Internet
portals and e-Commerce sites. Internet Gold is part of the Eurocom
Communications Group and its shares trade on the Nasdaq Global
Market and on the Tel Aviv Stock Exchange. For additional
information about Internet Gold, please visit its investors' site
at http://www.igld.com/. Certain statements made herein that use
the words "estimate," "project," "intend," "expect," "believe" and
similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve known
and unknown risks and uncertainties which could cause the actual
results, performance or achievements of the Company to be
materially different from those which may be expressed or implied
by such statements, including, among others, changes in general
economic and business conditions and specifically, decline in
demand for the Company's services, inability to timely develop and
introduce new technologies, services and applications and loss of
market share and pressure on prices resulting from competition. For
additional information regarding these and other risks and
uncertainties associated with the Company's business, reference is
made to the Company's Annual Report filed with the Securities and
Exchange Commission and its other reports as filed from time to
time with the Securities and Exchange Commission. NOTE A:
Convenience Translation to Dollars For the convenience of the
reader, the reported NIS figures of March 31, 2007 have been
presented in thousands of U.S. dollars, translated at the
representative rate of exchange as of March 31, 2007 (NIS 4.155 =
U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not
be construed as representing amounts receivable or payable in U.S.
Dollars or convertible into U.S. Dollars, unless otherwise
indicated. Consolidated Balance Sheets Convenience translation into
into US Dollars NIS4.155=US$1 March 31 March 31 December 31 March
31 2007 2006 2006 2007 (Unaudited) (Unaudited) (Unaudited)
(Unaudited) NIS (in US$ thousands thousands) Current assets Cash
and cash 73,358 264,095 320,479 17,655 equivalents Short-term
investment 418 1,213 883 101 Trade receivables, net 246,555 75,059
219,308 59,339 Other receivables 44,933 14,372 42,462 10,814
Deferred taxes 6,683 497 6,846 1,608 Assets allocated to 6,116 -
5,927 1,472 discontinued operations Total current assets 378,063
355,236 595,905 90,989 Long-term receivables and non current assets
2,895 477 4,238 697 Property and equipment, 155,467 35,594 161,759
37,417 net Other assets and 918,155 110,292 915,358 220,976
deferred charges Total assets 1,454,580 501,599 1,677,260 350,079
Consolidated Balance Sheets - Cont. Convenience translation into
into US Dollars NIS4.155=US$1 March 31 March 31 December 31 March
31 2007 2006 2006 2007 (Unaudited) (Unaudited) (Unaudited)
(Unaudited) NIS (in US$ thousands thousands) Current liabilities
Short-term bank credit 366,021 8,063 372,039 88,092 Accounts
payables 208,474 62,777 206,584 50,174 Other payables 59,496 28,293
51,900 14,319 Payables in respect of - - 584,000 - acquisition of
012 Liabilities allocated to discontinued operations - - 718 -
Total current liabilities 633,991 99,133 1,215,241 152,585
Long-term liabilities Long-term loans and other long-term
obligations 53,995 27,204 19,599 12,995 Liability for termination
of employer- employee relations, net 14,207 7,324 14,844 3,419
Deferred tax liability 38,972 - 38,246 9,380 Debentures 270,674 - -
65,144 Convertible debentures 165,668 203,703 198,998 39,872 Total
long-term liabilities 543,516 238,231 271,687 130,810 Minority
interest - - 89 - Shareholders' equity Ordinary shares 216 197 199
52 Additional paid in capital 307,111 232,476 238,776 73,913
Accumulated deficit (30,254) (68,438) (48,732) (7,281) Total
shareholders' equity 277,073 164,235 190,243 66,684 Total
liabilities and shareholders' equity 1,454,580 501,599 1,677,260
350,079 Consolidated Statements of Operations Convenience
translation into into US Dollars NIS4.155=US$1 Three month
Three-month period ended Year ended period ended March 31 December
31 March 31 2007 2006 2006 2007 (Unaudited) (Unaudited) (Unaudited)
(Unaudited) NIS thousands (except per share data) US$ thousands
Revenues 300,676 92,845 413,559 72,365 Costs and expenses: Cost of
revenues 208,049 57,102 257,001 50,072 Selling and marketing
expenses 37,571 17,785 76,188 9,042 General and administrative
15,783 8,294 33,957 3,799 expenses Amortization of acquired 5,705 -
- 1,373 intangible assets Total costs and expenses 267,108 83,181
367,146 64,286 Income from operations 33,568 9,664 46,413 8,079
Financing expenses, net 11,153 2,559 5,614 2,684 Other expenses
(income), net 460 (23) 12,813 111 Income before tax expenses 21,955
7,128 27,986 5,284 Tax expenses 3,520 598 1,286 847 Minority's
share (loss) in (44) (95) 34 (11) consolidated subsidiary Company's
share in net loss of investees 1 - 344 - Net income 18,478 6,625
26,332 4,448 Income per share, basic and diluted Basic income per
share 0.94 0.36 1.43 0.23 Diluted income per share 0.80 0.36 1.43
0.19 Weighted average number of shares outstanding (in thousands)
Basic income per share 19,658 18,432 18,438 19,658 Diluted income
per share 24,928 18,432 18,438 24,928 Reconciliation Table of
Non-GAAP Measures Three-Month Period Ended March 31, 2007 2006
(Unaudited) (NIS In thousands) GAAP operating income 33,568 9,664
Adjustments Amortization of acquired intangible assets Included In
operating expenses 5,705 - Non-GAAP operating income 39,273 9,664
GAAP tax expenses, net 3,520 598 Adjustments Amortization of
acquired intangible assets Included In tax expenses, net 1,655 -
Non-GAAP tax expenses, net 5,175 598 Net Income As Reported 18,478
6,625 Minority Interest In Operations Of Consolidated Subsidiaries
(44) (95) Company's Share In Net Income (Loss) Of Investees 1 -
Taxes On Income 3,520 598 Other Expenses 460 (23) Financial
Expenses 11,153 2,559 Depreciation & Amortization 29,505 6,427
Non-GAAP EBITDA 63,073 16,091 For further information, please
contact: Lee Roth KCSA Worldwide +1-212-896-1209 In Israel: Mor
Dagan Investor Relations +972-3-516-7620 Ms. Idit Azulay, Internet
Gold +972 3 939-9848 DATASOURCE: Internet Gold CONTACT: For further
information, please contact: Lee Roth, KCSA Worldwide,
+1-212-896-1209; In Israel: Mor Dagan, Investor Relations,
+972-3-516-7620; Ms. Idit Azulay, Internet Gold, +972-3-939-9848,
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